How to (Safely) Buy a Rising Market

Posted by Greg Guenthner via The Rude Awakening

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RUDE Relentless 051613
  • Don’t chase euphoria—buy the bounce
  • Where’s the next low-risk buying opportunity?
  • Plus: More on gold’s recent drop

Predicting the direction of the major indexes on a day-to-day basis is an impossible feat. Attempting to play the market’s movements by the hour or minute will cause you to go insane (and lose all of your money in the process).

But if you take a step back from the intraday noise, the market paints a picture that can help you time your long-term investments and trades. 

Since the broad market bottomed in mid-November, stocks have moved higher within a rising channel. It doesn’t take a lot of technical know-how to see the price extremes. The chart clearly shows where the market typically becomes overheated, and where it bounces after a pullback.

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As you can see, the S&P’s May rally puts the index at the very top of its trading channel. This is the point where many investors are sucked into the euphoria of the quick move higher. But if you’ve been paying attention, you know this isn’t the best place for a low-risk buy.

Could the market sprint even higher from here? It’s possible. But a more likely outcome is a pause at the top of the channel as stocks become overextended. When the market finally does flatten out and move closer to the bottom of its channel, you’ll have an ideal buying opportunity.

Remember to keep a close eye on the technology and biotech sectors. Over the past couple of weeks, the rally has broadened and these are two groups that are trying to take the lead. When we do get that low-risk buying opportunity, this should be the first place you look for a new trade…

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Thanks to more downside action, I’ve received a lot of gold questions… 

Here’s one:

When do you think gold stocks are going to start rallying?

Hard to say. As of last night, it doesn’t look like miners have much fight in them. Gold continues to trend lower and miners are getting crushed left and right. I’ve been searching for a snapback rally (in the miners, not the metal) for several weeks now. Nothing has triggered. 

I know it’s tempting to go after a position in the Market Vectors Gold Miners ETF—especially since it’s massively oversold. But “oversold” is no guarantee that higher prices are in store for us anytime soon. 

In short, the miners are all falling knives. They could continue to move lower from here… 

Here’s another: 

“I would like to know what you think about price of gold in the long-term (3 to 5 years). As you know, most of the Agora writers are very bullish on gold. Do you share their bullishness?”

My price target for gold is $1,000 (give or take $100). I can’t tell you the exact date it will arrive at this target. All I know is that it will take more time. 

But in 5 years? I’m not sure. My guess is that in 5 years, the price of gold will still be below $2,000 an ounce. 

A lot can happen in 5 years. We’ll experience new political policies, wars, triumphs, tragedies, and technological advancements. Most importantly, we’ll have the chance to reevaluate our thinking every few months or so. After all, any prediction becomes a wild guess once it reaches far enough into the future. 

There are no guarantees in any market. Gold is no exception. It is not immune to selling pressure or trend changes.

[Ed. Note: Send your feedback here: – and follow me on Twitter: @GregGuenthner]

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